China’s American Enablers

China argues that some American companies will suffer if China stops subsidizing manufacturing and adjusts their currency to market levels. They’re right. The fight over Chinese violations of trade rules is also another story about Wall Street and big, monopolistic corporations vs Main Street and American workers.

China Daily today says China’s huge export surplus is being “misread.” The Chinese government says that US companies — the ones who close US factories, lay off workers, devastate communities and throw the costs onto the government — are also beneficiaries of China’s government subsidies. From the story,

China’s large trade surplus is often used by the United States to argue why China should allow its currency to rise.

Yet most US officials ignore a very important fact: a majority of China’s exports to the US are produced by US-funded companies and huge profits go back into American pockets. . . . “China’s cheap labor helps foreign companies cut wage costs and increase their profits. Ironically, the rising profits go into foreign bosses’ pockets and China is left to take the blame for the trade imbalance,” said Tan Yaling, an expert at the China Institute for Financial Derivatives at Peking University.

This story is correct. SOME Americans do benefit from closing our factories. Actually, “benefit” might even be the wrong word here. SOME Americans are getting fabulously wealthy from these policies, beyond anything seen before in history, with the rest of us falling further and further behind as a result. Wal-Mart, for example, with their stores full of Chinese goods, has for decades been wiping out regional and local retailers and lowering the local wage and tax base.

The private equity company-buyout game works like this: buy a company, borrow against the company name and assets and put the proceeds straight into your pocket, sell off assets, outsource jobs, lay people off, cut pay and benefits for the rest, close facilities and factories, externalize costs onto the community, cheapen whatever the company makes or does, run up the debt some more, squeeze money out and pocket it and then sell. Hopefully you make off with the pension fund in the process.

They have been backed by American conservatives who have have long argued in favor of these “free market” and “free trade” scam that, close US factories, instead importing goods subsidized by China’s government. A few get fabulously wealthy at the expense of the rest of us. To persuade people to support this nonsense they say that adjusting China’s currency to market rates would “punish” consumers. For example, the Heritage Foundation a couple of years ago, China’s Undervalued Currency Benefits Americans,

To the extent that the renminbi is undervalued … the benefit goes to U.S. consumers and businesses, which pay lower prices for Chinese goods imported into the United States.

. . . U.S. consumers have the most to lose by congressional efforts to force revaluation of the renminbi. Chinese goods in the U.S. are cheap because the renminbi is cheap. Revaluation will weaken the purchasing power of the American consumers, mostly from the middle and lower economic strata, who depend on Chinese products to maintain their standard of life.

So here we are at a crossroads. April 15 the President has to officially declare that China is manipulating its currency and impose tariffs that will start to bring back factories and jobs to America. There is going to be tremendous pressure from the usual suspects to do the wrong thing, but the wrong thing has been going on long enough.

About Dave Johnson

Dave has more than 20 years of technology industry experience. His earlier career included technical positions, including video game design at Atari and Imagic. He was a pioneer in design and development of productivity and educational applications of personal computers. More recently he helped co-found a company developing desktop systems to validate carbon trading in the US.